Currently, about 250,000 American businesses turn to the human resources support offered by a PEO, or Professional Employer Organization. That number is likely to go up significantly in the years to come, as the National Association of Professional Employer Organizations has scored a huge win on Capital Hill.

On December 16, 2014, the U.S. Senate approved the Small Business Efficiency Act, which was part of the overall tax extends bill for the IRS. The House of Representatives had already approved the measure, and President Obama signed this bill into effect soon after Congressional approval.

What This Legislation Means for Businesses

The Small Business Efficiency Act establishes a certification program for PEOs, which will allow them to act on behalf of the companies they represent. When working with a Certified Professional Employer Organization, or CPEO, the company essentially transfers their liability for collecting and remitting federal employee taxes to their CPEO.

Once the business has contracted with a CPEO and remitted the employee taxes they have held from employee paychecks, the business is no longer liable. Any liabilities, penalties, fines, etc. are transferred to the CPEO. This frees the business from frequently changing and difficult to comprehend tax laws, and allows businesses to hire a CPEO with confidence.

What This Legislation Means for the PEO Industry

Caption: PEOs get credibility within the marketplace, which will encourage more businesses to outsource many HR responsibilities.

In order for a PEO to become a CPEO, the company will have to prove their record of experience, solidity of their background, and maintain a minimum $50,000 bond. The PEO must also pay an annual fee and assume liability for their clients’ employee taxes. This certification lends a strong amount of credibility to PEOs that have undergone the certification process. The IRS will be responsible for the steps and specific requirements of certification, which have yet to be fully ironed out. However, these steps should be in place by June of 2016.

The legislation was a rare example of bipartisan cooperation, receiving support from both sides of the Congressional isle. Supporters include Republican Senator Chuck Grassley of Iowa, Democrat Bill Nelson of Florida, Republican Kevin Brady of Texas, and Democrat Mike Thompson of California. The approval will benefit the entire PEO industry by adding a measure of credibility by establishing a strict code of conduct and performance in order to obtain and retain certification.

Additional Benefits of Utilizing PEOs

In addition to transferring employee tax liabilities, contracting with a PEO offers many other advantages to the business. The PEO can support their clients with strong benefits packages designed to lure and retain industry-best workers, handle workers’ compensation insurance requirements, help the business establish and maintain safe working conditions, and generate sound policies and top-quality employee handbooks. PEOs also handle payroll duties, including tax processing and remittance, so all the business has to do is focus on their own purposes and goals. SourceOne Partners can help you find a CPEO to help mitigate your risk and ensure compliance with changing laws. Call 561-674-0748 or visit the website for more information.

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Are you thinking about outsourcing payroll services or HR, or looking into changing your PEO provider? Contact us for a Free consultation from one of our PEO or payroll experts. Call us at 561.674.0748